Combating healthcare fraud in New Jersey

Compliance TODAY October 2015

a publication of the health care compliance association

hcca-

Combating healthcare fraud in New Jersey

an interview with Paul J. Fishman

United States Attorney for the District of New Jersey

See page 16

27

35

43

49

Final rule for Accountable Care Organizations:

Enabling technologies, Part 1

Paul R. DeMuro

Narrow network health plans:

New approaches to regulating adequacy

and transparency

Michael S. Adelberg

OIG offers new guidance for healthcare

governing boards

Paul P. Jesep

Telemedicine arrangements:

Trends and fair market value considerations

Jen Johnson and Mary Fan

This article, published in Compliance Today, appears here with permission from the Health Care Compliance Association. Call HCCA at 888-580-8373 with reprint requests.

by Daniel Meier, JD, CHC

Corporate practice doctrines and fee splitting: Are you in compliance?

??Corporate practice doctrines may prevent corporations from practicing medicine/dentistry. ??Fee-splitting laws may prohibit management organizations from being compensated based on a percentage of patient revenue. ??Certain state governments strictly enforce corporate practice doctrines and fee-splitting laws. ??Management organizations must ensure their operational practices comply with written agreements. ??Healthcare organizations should carefully review corporate practice doctrines before expanding into new states.

Daniel Meier (dmeier@) is an Associate with the law firm of Benesch, Friedlander, Coplan & Aronoff, in its Hackensack, NJ office and a member of the firm's Healthcare Practice Group.

On June 18, 2015, New York Attorney General (AG) Eric T. Schneiderman announced a settlement1 with Aspen

Dental Management, Inc. (Aspen Dental) in

which Aspen Dental agreed to pay $450,000

in civil penalties and reform its business and

marketing practices to resolve alle-

gations that it violated New York's

corporate practice of medicine and

dentistry doctrines (corporate practice

doctrines) and fee-splitting laws.

The Aspen Dental settlement

should serve as a reminder to health-

Meier

care companies that the corporate

practice doctrine is still actively

enforced in New York and other states.

Management and support services organiza-

tions should review their management and

service agreements and ensure that their imple-

mentation is in line with the planned structure

and the arrangements comply with the applica-

ble corporate practice doctrines and fee-splitting

laws of the states in which they operate.

Summary of corporate practice doctrines and fee-splitting prohibition The corporate practice doctrines generally arise from a state's professional licensing laws that prohibit the unauthorized practice of medicine, dentistry, or ophthalmology; only licensed individuals can practice medicine or dentistry. Through state statutes, regulations, court opinions, and medical board opinions, the law in many states expressly or implicitly prohibits general corporations or limited liability entities from practicing medicine or dentistry, or employing or contracting with physicians or dentists to practice through such entities, because such entities cannot hold a medical or dental license.

Some states do not recognize, have abolished, or have specifically refused to enforce the corporate practice doctrines. Other states, however, have their own set of corporate practice doctrines. And still others have specific exceptions to the corporate practice doctrines. For example, New York's corporate practice doctrine prevents corporations from practicing medicine or dentistry. Although not directly set forth in statute, New York's corporate practice doctrine finds its source in the New York Education Law,

888-580-8373hcca- 71

Compliance TodayOctober 2015

which makes clear that only natural persons

clarify these prohibitions. Accordingly, unlike

may be licensed to practice medicine,2 dentistry,3 the practice in some states, management and

or dental hygiene.4 Shareholders of professional support service organizations in New York

service corporations must be physicians or den- may not manage a physician's or dentist's

tists who are also licensed to practice within the practice in return for a percentage of patient

state.5 Significantly, violating the prohibition on revenues, given New York's fee-splitting rules.

the corporate practice of medicine or dentistry

It is also important to note that the corpo-

is a felony.6

rate practice doctrines in various states may

In certain states, compensation relation-

differ in severity between the corporate practice

ships, based on a concept of net revenues or a of medicine, dentistry, ophthalmology, and

percentage of revenues, may expressly violate others. For example, New Jersey's corporate

the corporate practice

practice of dentistry

doctrines through feesplitting prohibitions.

In certain states,

doctrine is actually more strict than its

Under New York law, compensation relationships

licensed professionals or professional firms

...may expressly violate the

corporate practice of medicine doctrine. The New Jersey

are prohibited from splitting or sharing their fees with individuals or entities not

corporate practice doctrines through fee-splitting prohibitions.

Board of Medicine and the New Jersey Board of Dentistry generally prohibit

licensed to provide

corporations from

healthcare services.7

employing physicians

Essentially, a provider cannot split a fee with a or dentists to provide professional services,

non-physician/dentist. This prohibition extends with certain exceptions.10 However, the Board of

to business corporations and individuals who Dentistry has an even broader prohibition lim-

do not possess a license to provide the rel-

iting the types of services that can be provided

evant healthcare services. The accompanying by business entities, such as dental service

regulation expressly prohibits compensation

organizations.11 Moreover, unlike its medical

arrangements involving fees paid as a percent- counterpart, the Board of Dentistry also prohib-

age of, or even dependent upon, revenue earned its fee-splitting between a professional dental

by healthcare professionals.8 There is also a

practice and non-licensed individuals or enti-

corporate parallel in New York regulations on ties where fees would be paid based in any way

the prohibition of fee splitting between medical (such as a fixed percentage) on the revenue of

facilities (including Article 28 and 36 facili-

the dental practice.12

ties) and individuals or entities which have not

Notably, in 2013, the New Jersey Dental

been approved as a healthcare establishment

Association had proposed regulations con-

by the Department of Health.9 The purpose of straining the corporate practice of dentistry

the prohibition is to limit control by an unregu- even further in New Jersey.13 The proposed reg-

lated and unaccountable entity over a licensed ulations would have prohibited non-licensees

provider and to protect the financial viability of from making decisions "relating to compen-

the licensed provider.

sation, hiring, firing, financing, borrowing,

A number of New York Department of

leasing, purchasing, claim submissions, billing,

Health Advisory Opinions further detail and advertising, office policies and procedures,

Compliance TodayOctober 2015

72 hcca-888-580-8373

participation in and/or termination of all dental Dental is also accused of barring its individual

plans including Medicaid, and the establish-

locations in a region from competing against

ment of patient fees and modification or waiver each other for patients.

thereof."14 However, on February 3, 2015, the

The AG also alleged that Aspen Dental

New Jersey Dental Association withdrew

exercised undue control over the dental

its petition for rulemaking, so the proposed

practices' finances by utilizing a single con-

restrictions were never passed.15

solidated bank account for all of the dental

practices and to which the dental practice

AG's investigation of Aspen Dental

owners did not have access. Additionally, the

The AG's Office reported that it began its

AG noted that New York fee-splitting laws

investigation in 2013 after having received

prohibit a healthcare management company

more than 300 consumer complaints over the from being compensated based on the profits

past 10 years regarding Aspen Dental's quality of the clinics it manages. The New York AG's

of care, billing practices, misleading advertis- Office specifically claimed that Aspen Dental

ing, upselling of unnecessary dental services took a pre-set percentage of each dental office's

and products, and dental care financing.

monthly gross profit.

The AG's Office claimed that rather than

Notably, the settlement agreement16 between

provide arms-length, back-end business and Aspen Dental and New York State indicates that

administrative sup-

Aspen Dental and the

port to independent

dental practices had

dental practices, Aspen Dental developed a chain of dental practices tech-

The AG's Office reported that it began its investigation

[of Aspen Dental] in 2013

contracts in place that set forth an annual flat fee for the management services, in

nically owned by the individual dentists, but subject to exten-

after having received more than 300 consumer

addition to payments for expenses. However, the dental practices'

sive control by Aspen Dental, in violation of New York's corporate

complaints over the past 10 years...

financial statements purportedly reflect that Aspen Dental was

practice doctrine.

not paid a flat fee for

Aspen Dental's

its services. Rather,

extensive control was allegedly demonstrated Aspen Dental received an agreed-upon percent-

by Aspen Dental sharing in the individual

age of each office's gross profits on a monthly

clinic profits and marketing by Aspen

basis, which typically was 45% or 50% of an

Dental under Aspen Dental's trade name.

office's gross profits.

Furthermore, the AG alleged that, through

an array of business practices, Aspen Dental Aspen Dental management's

routinely made decisions that impacted clini- response to AG's press release

cal care and dictated the dental practices' care In response to the AG Office's press release con-

of patients, including incentivizing sales of

cerning the settlement, Aspen Dental defended

services and products, implementation of rev- its business practices and accused the AG's

enue-oriented patient scheduling systems, and Office of mischaracterizing the nature of the

hiring and oversight of clinical staff. Aspen

settlement agreement.17 Aspen Dental claimed

Compliance TodayOctober 2015

888-580-8373hcca- 73

that it has never made decisions about clinical care for the 1.2 million patients seen at the independent practices in New York State over the past 10 years. Furthermore, Aspen Dental characterized the AG's statement that the dentists only "technically" owned the dental practices as a gross misstatement of fact, because the owners are in their offices every day, "treating patients and exercising complete control over all clinical decisions." Finally, Aspen Dental explained that it has never employed clinical staff nor exercised any control over clinical care.

Settlement agreement with Aspen Dental management When entering into the settlement agreement, Aspen Dental neither admitted nor denied the AG's findings, but agreed to make certain changes to its business and marketing practices with respect to the dental practices located in New York to which Aspen Dental provides its administrative and support services, including: ?? Not controlling the dental practices' clini-

cal decision-making; ?? Not communicating directly with clinical

staff concerning how to provide care or sell services or products, or the amount of revenue generated by services or products; ?? Not employing the practices' clinical staff; ?? Not splitting fees with the practices for professional services rendered; ?? Keeping the practices' finances separate from its own; ?? Allowing each practice to have full and complete control over its own revenues, profits, incomes, disbursements, bank accounts, and other financial matters and decisions; ?? Making clear on its website for consumers that Aspen Dental only provides administrative and business support services to independently owned and operated dental practices; and

?? Ensuring that each dental practice posts

its own legal name, so it is easily visible to

patients who enter those premises.

Finally, Aspen Dental also agreed to pay

a $450,000 civil penalty and to also pay for an

independent monitor who will oversee the

implementation of the settlement over a three-

year period. It is important to note that the

settlement agreement only pertains to Aspen

Dental's operations in New York.

Lessons learned

The Aspen Dental settlement should serve

as a reminder to management and support

service organizations in all states to be

wary of the continued focus on practice

management structures and the heightened

enforcement of fraud and abuse in the

industry. Management and support services

organizations should review their agreements

for compliance with applicable corporate

practice doctrines and other state laws, and

to ensure that their day-to-day operations are

in line with the planned structure set forth

in the agreements.

1.New York Office of the Attorney General, press release: Attorney General Schneiderman Announces Settlement With Aspen Dental Management That Bars Company From Making Decisions About Patient Care In New York Clinics. June 18, 2015. Available at

2.N.Y. Educ. Law ? 6522. Available at 3.N.Y. Educ. Law ? 6602. Available at 4.N.Y. Educ. Law ? 6607. Available at 5.See N.Y. Bus. Corp. Law ?? 1501, 1503(a), 1507. Available at

6.N.Y. Educ. Law ? 6512. Available at 7.N.Y. Educ. Law ? 6509-a. Available at 8.New York State, Office of the Professions: Rules of the Board of

Regents, Part 29: Unprofessional Conduct. 8 NYCRR 29.1(b)(4). Available at 9.New York Codes, Rules and Regulations: 10 NYCRR 600.9(c). Available at 10.New Jersey Administrative Code: N.J.A.C. 13:35-6.16. Available at . See also New Jersey Statutes Annotated: N.J.S.A. 45:6-12. Available at 11.New Jersey Statutes Annotated: N.J.S.A. 45:6-19. Available at 12.New Jersey Administrative Code: N.J.A.C. 13:30-8.13. Available at 13.New Jersey Register: 45 N.J.R. 2406(B). Nov. 13, 2013. Available at 14.Id. 15.New Jersey Register: 47 N.J.R. 557. March 2, 2015. Available at 16.Assurance of Discontinuance, In the Matter of Aspen Dental Management, Inc. Available at 17.Aspen Dental Management, Inc. Statement, June 18, 2015. Available at

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